The effects of a carbon price on industry output depend on the number of countries implementing the policy as well as parallel policies to compensate losers. The effects are also likely to change over time as firms and customers gradually adjust to the new prices. Here we examine the effects of a $15/ton CO2 price, including Waxman-Markey type rebates to energy-intensive industries, on U.S. industry output and profits over four time horizons – the very short run and short run when input substitution are not possible, and the medium and long run when they are. We also consider the competitiveness and leakage effects – the changes in trade flows and changes in emissions in the rest of the world. We find that if firms cannot pass on the higher costs, the loss in profits in a number of industries will indeed be large. However, assuming a commonly used set of elasticities from GTAP, the reduction in output and profits is substantially smaller. The leakage effect, while substantial with a unilateral policy, is mitigated with joint Annex I action.

All seminars will be in the 7th Floor Conference Room at RFF, 1616 P Street NW. Attendance is open, but involves pre-registration no later than two days prior to the event. For questions and to register to an event, please contact Juha Siikamäki at juha@rff.org (tel. 202-328-5157) or Daniel McDermott at McDermott@rff.org (tel. 202-328-5174). Updates to our academic seminars schedule will be posted at www.rff.org/academicseminarseries.